March 9, 2016
Shopping for life insurance can be confusing if you are not familiar with the terms, and it is not the easiest thing to do even if you are familiar with the lingo. A life insurance agent should be able to explain policies and terms to you in an understandable fashion, and help you to explore your options.
Here are five of the most important questions to pose to your agent:
- How Stable Is The Insurer? – If you are buying from an independent agent or broker, you may not realize who the actual insurer is, or you may not know much about the company. Many well-respected insurance companies are not household names.
Your agent should be able to give you details about your insuring company, including the size, assets, financial stability, ratings with A.M. Best or other industry ratings systems, proof of license to operate in your state, and any other questions you may have.
- How Much Life Insurance Do You Need? – Most insurers will have a formula to determine your expected need based on two factors – how much it will take to pay off all of your debts including your mortgage, and the lifestyle that your dependents expect to live after you are gone. However, this formula differs between insurers.
Your agent should be able to explain the methodology to you, and how to value properly any unusual needs you may have such as medical debts, business obligations or other debt that may not be covered in a standard formula.
- What Type of Insurance is best for you? – Do you need simple term life insurance, or do you find the investment component of a permanent life policy attractive? A good agent should be able to follow up with questions such as your tolerance for risk, investing acumen, affordability of a policy given your income, and other factors to determine what is best in your case.
If an agent cannot explain the purpose and terms of each type of policy in a way that you can understand, beware. They either do not understand it themselves or cannot communicate it properly. In either case, you can do better.
- What Are the Exclusions and Benefits? – Any policy will contain exclusions in the fine print as well as an explanation of the benefits. It is important to understand both in detail. For example, does your death benefit adjust for inflation? Is there a premium waiver in case of disability, and what is the definition of disability? Is death through dangerous hobbies like skydiving excluded? Is that important to you?
- Is the Policy Renewable and/or Convertible? – If you have a term policy, what are your options to renew it at the end of the term? Does it require a new medical exam and a premium increase? Can you convert the policy into a permanent policy and how much will it cost?
The ability to convert to a permanent policy at the right time is extremely useful. As you age, with most renewable policies the premiums for a term policy will surpass those of a permanent policy. Make sure you understand your options to maximize your value and minimize your premiums.
A good insurance agent will be able to provide you with straight answers to these questions, and help find the best policies for you. Find an insurance agent you can trust and pose these questions to him or her. However, you should trust your instincts – if something does not seem right, find a different agent and insurer. Be confident before you sign any insurance policy, and read the fine print. Make sure you’re getting what you’re paying for.
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